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Wednesday, May 22, 2013

ES TRADE REVIEW FOR 05-22-2013

WOW, what a day. I am going to do a quick review but there was simply too much to go over every blow by blow. Before i do that though, Let me go over some basic concepts.
1) WHITE ZONE. When trading above, buyers are in control. This is designed to protect me. I am focusing primarily on longs & being very cautious on taking shorts. Just the opposite when below the WHITE ZONE.
2) Initial Resistance/ Initial Support I expect responsive buyers or sellers to step in at these zones and make a significant push in the opposite direction. Does it happen always, no, but it happens often. When these zones are placed at new all time highs they are based on calculations & are therefore not as accurate as other zones.
Once one of these zones are hit, I am much more cautious of taking a trade in the direction of control without a significant counter rotation back towards the WHITE ZONE.
3) The first time into a zone has the highest odds for a small counter rotation up. When I say small I mean 5 to 8 ticks.
4) Trade location. The most aggressive location to place a trade is at the front of the zone. The least aggressive point to place a trade is at the middle to back of the zone. The farther back you can place the trade, the least amount of risk you have to take to see if the zone will hold. The location of the zone itself is an edge.
I am only going to cover the highlights of today because i could write a book on the trading that took place today. If you have a specific question, please hit me on twitter or email me.
So, anytime you have the Fed Chair testifying it can be a HARD day to trade. I dont like hard days. I actually like easy. I could live the rest of my life without another FED day. Secondly, there is alot of fantasy about days like today. Most traders don't catch these moves; the size of rotations exploded and the speed of the moves accelerate. The stops that work for you most days just handed you losses today. If your not accurate with your chart work the market will punish you with moves against you for early entry. Most of the good patient traders I know made money, a few hit home runs. Everyone else who was even off a bit with their entries and exits had a alot of stops & frustrations.
I mentioned early on that not trading on a fed day was totally acceptable and maybe even advisable. I was certainly slow to pull the trigger myself. All that being said, I am going to hit the highlights tonight and leave it at that.

1) ES opened in the 1667.50-1669 zone & imminently drove higher up into Pre Market Resistance. Responsive sellers were able to drive ES down from the middle of the zone to 1670 but it was short lived. Everyone was waiting for BEN. It was simply advisable to wait it out. As soon as Ben said good-morning it was off to the races. Since we were above the WHITE ZONE the focus was on longs until Initial Resistance at 1681-1683. We hit the back of the zone with a +1000 tick & the final push up & high of the day came on a negative tick divergence which often leads to fantastic trade location. Again, the zone was a calculation done prior to market open & was very close to nailing the top if not exact.
2) Since we had hit Initial Resistance zone this was a good location to close out any trailing longs & for aggressive traders to initiate shorts. I am very reluctant to take longs once Initial Resistance has been hit without a significant move lower. You had to pay attention to the rotations. We traveled up 20 ES points from the prior days close so a five or 6 point rotation down was not going to do anything for you. You needed to think in variables of 10's. The back of the WHITE ZONE would give you a approximate rotation down of 12 points. A little more than half of the move up.
3) From the back of the WHITE ZONE, which by the way this was the first test since leaving, ES rotated all the way back up to the front of Initial Resistance at 1681-1683. (4) Again, this was a 10 point rotation up. Again, I expect sellers to come in at Initial Resistance until they dont. Each time a zone is hit the odds of the counter rotation fall but the odds are still there.
5) From here ES eventually worked its way down to the white zone. This was the 3rd test of the White Zone and there was no meaningful tick divergence and we have been in the process of setting lower highs and we just saw the smallest rotation up fo the entire 1st half of the day.
6) Once the WHITE ZONE was broken, all my focus shifted to the short side. The WHITE ZONE primary purpose is to protect me. There was no reason for me to think long below without significant compelling reason. Initial support at 1660 -62 would be a logical place to look for a turn. Unlike the Initial Resistance, Initial Support has been tested several times, once we closed below on a five minute bar it was broken. A tight stop behind the zone was all that was needed to test if it would hold. Once broken the first upside test gave excellent short location for what turned out to be a 12 point move lower to 1646-1648. I pointed out going into the last hour that trading this time of day can be very difficult I skip it. My guess is many traders got burned either playing for counter rotation up or stung by the rotation up at the end of the day when panic sellers did not materialize and ES pushed up 10 points.
Money goes quick in an environment like this. Know what your high value trades are and focus on those locations. Don't get caught up in the moment to moment action. Simply knowing what side to focus on combines with trade location is a HUGE EDGE. “You’ve got to think about big things while you’re doing small things, so that all the small things go in the right direction.”― Alvin Toffler

NOTE: Rates have gone up for my 4 session introductory coaching sessions. I will honor the $200 for 4 sessions of 1 on 1 coaching till Sunday Night 11:59 PM central time. Its an amazing value.

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Notice: This Blog & its contents are intended to be for educational purposes only & not to be construed as trading recommendationsin any way. You should not follow anyone blindly. Trading Futures & Options on Futures involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions are subject to change at any time.